Student loan rehabilitation is a federal program that takes a defaulted federal student loan out of default after you make nine voluntary, reasonable, and affordable monthly payments — each within 20 days of its due date — over ten consecutive months. Your payment is usually based on your income and can be as low as $5 a month. Once you finish, your loan returns to good standing, you regain access to repayment plans and federal aid, and the record of the default is removed from your credit report.

It’s one of the few ways to erase a negative mark from a credit report without disputing an error, which makes it especially valuable. This guide explains how rehabilitation works, how payments are calculated, what it does and doesn’t fix, how it compares with consolidation, and why now is an unusually good time to start.

Rehabilitation can take a defaulted loan back to good standing and clear the default from your credit report.

Key takeaways

• Rehabilitation applies to defaulted federal student loans, not private loans.
• You make nine on-time, affordable payments over ten consecutive months.
• Payments are generally based on 15% of your discretionary income and can be as low as $5.
• After rehabilitation, the default notation is removed from your credit report, though earlier late payments remain.
• Involuntary collections have been paused since January 2026, but defaulted loans remain subject to them when collections resume.
• Consolidation is faster but leaves the default history on your credit report.

What It Means When a Federal Student Loan Defaults

For most federal student loans, you’re considered delinquent the day after you miss a payment and in default once you haven’t made a scheduled payment for at least 270 days.

Default has serious consequences:

• The entire balance can become due immediately
• You lose eligibility for deferment, forbearance, and income-driven repayment
• You lose eligibility for additional federal student aid
• The default is reported to the credit bureaus
• Collection costs may be added to your balance
• The government can use involuntary collection: administrative wage garnishment of up to 15% of disposable pay, and Treasury offsets of tax refunds and certain federal benefits, without going to court

The current pause on involuntary collections

The Department of Education restarted involuntary collections after the pandemic, then announced on January 16, 2026 that it would delay administrative wage garnishment and Treasury offsets while it implemented new repayment reforms. As of this writing, no restart date has been announced. The pause doesn’t erase defaults, and a loan that remains in default stays eligible for garnishment and offsets once collections resume. That’s why this period is valuable: you can start rehabilitation now, while your paycheck and tax refund aren’t being taken.

How Rehabilitation Works

The rehabilitation process from first call to good standing.

Step 1: Contact the right office

For loans held by the Department of Education, contact the Default Resolution Group or the collection agency assigned to your account. You can find your loans and contact information by logging in to StudentAid.gov. For older loans held by a guaranty agency or school, contact the loan holder directly.

Step 2: Agree on a payment amount

Your rehabilitation payment is generally calculated as 15% of your discretionary income, divided by 12. Discretionary income is your adjusted gross income minus 150% of the federal poverty guideline for your family size and state. If your income is low, your payment may be as little as $5 per month.

If that formula produces a payment you can’t afford, you can ask for an alternative payment based on your monthly income and expenses. You’ll document your budget, and the loan holder will calculate an amount based on it.

Step 3: Get the agreement in writing

You’ll receive a rehabilitation agreement stating the payment amount. Review it carefully and return it signed. Keep a copy.

Step 4: Make nine qualifying payments

You must make nine voluntary payments, each within 20 days of its due date, during a period of ten consecutive months. That gives you a small amount of flexibility — one month can be missed without ending the program, as long as nine qualifying payments land within the ten-month window.

Payments collected involuntarily, such as through wage garnishment or a tax refund offset, don’t count toward rehabilitation. If garnishment is in effect when you start, it may continue for part of the program, depending on the rules that apply to your loan.

Step 5: Your loan leaves default

After your ninth qualifying payment, your loan is rehabilitated and transferred to a regular loan servicer. You’ll choose a repayment plan going forward — your rehabilitation payment amount isn’t your new permanent payment.

Nine qualifying payments within ten months.

What Rehabilitation Does for Your Credit

This is the biggest advantage of rehabilitation over other options.

What gets removed: The record of the default itself is removed from your credit report after successful rehabilitation.

What stays: Late payments reported before the loan defaulted remain on your credit report. Those late payments generally stay for seven years from the date they were reported late, and their impact fades over time.

After rehabilitation, check your reports at AnnualCreditReport.com to confirm the default notation is gone and the loan shows as current with the new servicer. If the default still appears, dispute it with each credit bureau and include proof of rehabilitation.

What Else Rehabilitation Restores

Once your loan is rehabilitated, you regain:

• Eligibility for deferment and forbearance
• Access to repayment plans, including income-driven repayment
• Eligibility for additional federal student aid
• Eligibility for loan forgiveness programs, if you otherwise qualify

Wage garnishment and Treasury offsets also stop once the loan is out of default.

Rehabilitation vs. Consolidation

Consolidation is the other main way out of default. You take out a new Direct Consolidation Loan that pays off the defaulted loans.

Speed versus a cleaner credit report.

Choose rehabilitation if you want the default removed from your credit report and can make nine payments.

Choose consolidation if you need out of default quickly — for example, to regain eligibility for federal aid before a semester — and the credit report impact matters less to you.

Limits on How Often You Can Rehabilitate

Historically, you could rehabilitate a defaulted loan only once. If a rehabilitated loan defaulted again, rehabilitation wasn’t available the second time.

The Working Families Tax Cuts Act of 2025 allows borrowers to rehabilitate a defaulted loan a second time, but the Department of Education’s implementing regulation set that change to take effect July 1, 2027. Until then, a borrower who has already used rehabilitation on a loan generally can’t use it again for that loan. Check StudentAid.gov for the current rules.

How Your Rehabilitation Payment Is Calculated: An Example

Here’s a simplified illustration. The figures are hypothetical — your actual amount depends on your income, family size, state, and the current poverty guideline.

Suppose your adjusted gross income is $32,000, and 150% of the poverty guideline for your household size is $24,000.

• Discretionary income: $32,000 minus $24,000 = $8,000
• Fifteen percent of discretionary income: $8,000 x 15% = $1,200
• Divide by 12: $1,200 / 12 = $100 per month

If your income were below 150% of the poverty guideline, your discretionary income would be zero or close to it, and your payment could be as low as $5.

How to Request an Alternative Payment

If the calculated payment isn’t affordable, ask for an alternative payment based on your income and expenses. You’ll typically complete a financial statement listing:

• Monthly income for everyone in your household
• Housing, utilities, and food
• Transportation, insurance, and medical costs
• Child care and support payments
• Other debt payments

The loan holder uses that information to set a payment you can reasonably make. Be accurate and keep copies of what you submit. Asking for an alternative payment is your right — there’s no penalty for requesting one.

What Happens to Interest and Collection Costs

Interest generally continues to accrue while your loan is in default and during rehabilitation. Collection costs may also be added to your balance when a defaulted loan is rehabilitated. After rehabilitation, unpaid interest may be added to your principal balance. Ask your loan holder for a written statement of your balance, accrued interest, and any collection costs before you begin, and again after you finish, so you know exactly what you owe going forward.

If You Miss a Rehabilitation Payment

Because you need nine qualifying payments within ten months, you have room for one missed month. If you miss a payment:

• Contact the loan holder right away and ask how it affects your agreement
• Make the next payment within the 20-day window
• Ask whether your payment amount should be recalculated if your finances have changed

Missing more than one payment in the ten-month period may mean starting over. If your income drops during rehabilitation, ask for a new payment amount rather than simply stopping.

If You Have Several Defaulted Loans

Borrowers often have several loans in default, sometimes held by different entities. Loans held by the Department of Education are generally handled together through the Default Resolution Group. Older FFEL loans may be held by guaranty agencies, and Perkins loans may be held by schools. Each holder may run its own rehabilitation agreement, so list every loan on StudentAid.gov and confirm which office handles each one. If you can’t manage several agreements at once, ask whether consolidation might be simpler for some of them.

Parent PLUS and Other Special Cases

• Parent PLUS loans can be rehabilitated. Repayment options after rehabilitation may be more limited than for student borrowers, so ask about your choices before you finish.
• FFEL loans held by guaranty agencies can be rehabilitated through the guaranty agency, with a similar nine-payment structure.
• Perkins loans have their own rehabilitation rules, handled by the school or the Department of Education.
• Private student loans aren’t eligible. Private lenders set their own hardship and settlement policies.

Rehabilitation and Your Tax Refund

When involuntary collections are active, the Treasury Offset Program can take your federal tax refund to pay a defaulted student loan. Offsets don’t count toward your nine rehabilitation payments. Treasury offsets have been paused along with wage garnishment since January 2026, but once collections resume, a loan still in default can have refunds taken again. Completing rehabilitation before collections restart protects both your paycheck and your refund.

Should You Wait for the Pause to End?

It can be tempting to wait while collections are paused. There are good reasons not to:

• The default remains on your credit report until you resolve it
• Interest and possible collection costs continue to build
• You remain ineligible for federal aid, deferment, forbearance, and income-driven repayment
• Collections could resume with limited notice, and your loans would be eligible immediately

Starting now means your nine payments may be complete, or nearly complete, before involuntary collections restart.

Watch Out for Student Loan Scams

Scammers target borrowers in default with promises to “erase” loans or speed up rehabilitation for a fee. Remember:

• Rehabilitation, consolidation, and income-driven repayment are free through the Department of Education and your loan servicer
• Legitimate servicers won’t ask for your StudentAid.gov password
• No one can guarantee loan forgiveness in exchange for an upfront fee

If a company contacts you out of the blue about your student loans, verify it through StudentAid.gov before sharing any information.

Staying Out of Default After Rehabilitation

The most important decision comes after rehabilitation: choosing a repayment plan you can sustain. Federal repayment options changed significantly in 2026, and a new income-based Repayment Assistance Plan launched on July 1, 2026. Talk to your new servicer about:

• Income-driven repayment, which ties payments to your income and family size
• Standard repayment, if you can afford fixed payments
• Automatic debit, which may reduce your interest rate and prevents missed payments

Then protect yourself:

• Keep your contact information current with your servicer
• Recertify your income on time if you’re on an income-driven plan
• Call your servicer immediately if your income drops, before you miss a payment

Common Mistakes to Avoid

• Ignoring the pause. Involuntary collections are paused, not canceled. Use this time.
• Agreeing to a payment you can’t afford. You have the right to an alternative payment based on your expenses.
• Missing the 20-day window. Payments made outside it may not count.
• Assuming involuntary payments count. Garnished wages and tax offsets don’t count toward the nine payments.
• Stopping after rehabilitation. Choose a sustainable repayment plan right away.
• Paying a company to rehabilitate your loans. Rehabilitation is free through the Department of Education or your loan holder. Be wary of third parties charging fees for help you can get at no cost.

A Realistic Example

A borrower’s federal Direct Loans defaulted two years ago after a job loss. She’s working again, earning a modest income, and the pause on collections means her wages and tax refund aren’t currently being taken.

She logs in to StudentAid.gov, finds her loans with the Default Resolution Group, and calls to request rehabilitation. Based on her income and family size, her payment is calculated at a low monthly amount. She submits her tax return, signs the agreement, and sets up payments for the same day each month.

Ten months later, after nine on-time payments, her loans are transferred to a new servicer. She enrolls in an income-driven plan and turns on automatic debit. When she checks her credit report, the default notation is gone. The late payments from before the default are still listed, but they’re getting older every month.

Have these ready before you call.

Keep a Rehabilitation Record

Track your progress so there’s no dispute about whether you finished. Keep a simple log with the date of each payment, the amount, the confirmation number, and the due date it applied to. Save your signed rehabilitation agreement and every letter from the loan holder. If a payment is ever questioned, or if the default doesn’t come off your credit report afterward, this record makes the problem quick to resolve.

After Rehabilitation: Rebuilding Your Credit

With the default removed, your credit can start recovering. Keep your new student loan payments current, keep credit card balances low, and consider adding a secured credit card or credit builder loan if your file is thin. Late payments from before the default will continue to age and matter less each year. Our guide to credit builder loans explains one simple way to add positive history.

Frequently Asked Questions

How many payments does student loan rehabilitation require?

Nine voluntary, reasonable, and affordable monthly payments, each within 20 days of its due date, during a period of ten consecutive months.

How much are rehabilitation payments?

Generally 15% of your discretionary income divided by 12, which can be as low as $5 per month. If that’s not affordable, you can request an alternative amount based on your income and expenses.

Does rehabilitation remove the default from my credit report?

Yes. The record of the default is removed after successful rehabilitation. Late payments reported before the default remain on your report.

Can I rehabilitate a student loan more than once?

Historically, only once. A change allowing a second rehabilitation is scheduled to take effect on July 1, 2027. Check StudentAid.gov for the current rules.

Will my wages still be garnished during rehabilitation?

Involuntary collections, including wage garnishment, have been paused since January 2026. When collections are active, garnishment may continue during part of rehabilitation depending on your loan, and garnished payments don’t count toward your nine payments.

Can I rehabilitate private student loans?

No. Rehabilitation is a federal program. Private lenders set their own policies for hardship, modification, and settlement.

What happens after my loan is rehabilitated?

It’s transferred to a regular servicer, and you choose a repayment plan. You regain eligibility for deferment, forbearance, income-driven repayment, and federal student aid.

Does rehabilitation reduce my loan balance?

No. Rehabilitation returns your loan to good standing but doesn’t forgive principal. Your balance may actually include interest and collection costs added during default, so ask for a written statement of what you owe after rehabilitation.

Can I apply for federal student aid during rehabilitation?

Generally, after you make six qualifying rehabilitation payments, you may regain eligibility for federal student aid, even before you finish all nine. Confirm with the office handling your loan and the school’s financial aid office.

How do I know rehabilitation is complete?

You’ll receive notice that your loan has been transferred to a new servicer. Log in to StudentAid.gov to confirm the loan no longer shows as in default, then check your credit reports over the next month or two to confirm the default notation has been removed.

The Bottom Line

Student loan rehabilitation is one of the most powerful tools a defaulted borrower has: nine affordable payments can return your loans to good standing, restore your federal benefits, and remove the default from your credit report. With involuntary collections currently paused, there’s rarely been a better time to start, and every month you wait is a month the default stays on your record.

Log in to StudentAid.gov, contact the office holding your loans, and ask for rehabilitation. Then use our step-by-step guide on how to fix your credit to rebuild the rest of your credit profile.

Rebuilding Credit After a Student Loan Default?

Strong Credit Report has helped consumers across California and nationwide since [year] with credit report disputes and credit rebuilding. Your first consultation is free. Rehabilitation itself is free through the Department of Education — we’ll help with the rest of your report.

Schedule a free consultation or call 800-603-8045.

Strong Credit Report is a credit repair organization as defined under the Credit Repair Organizations Act. We are not affiliated with the U.S. Department of Education and do not provide student loan services. We cannot guarantee specific results or the removal of accurate information. This article is general information, not legal or financial advice.